IRA and 401(k) in the same tax year

Question

I live in the USA, married, and file my taxes jointly with my husband. I had a job A in Jan-Aug of 2016 and I put $ 2,472.37 on my 401(k) account pre-tax. Now in Sept-Dec I have another job, B, and they do not offer 401(k) or any other plan for retirement. I plan to put some amount to my Traditional IRA account in Sep-Dec 2016, but am I allowed to do it at all, and if yes, how much can I put pre-tax? Is there any calculator to calculate it? Or can I simply put maximum amount $5,500? I also own my own business beside my full-time job for an employer, it operates all year long, and I have an income every month - is this fact any helpful for idea of putting some funds on my IRA account in 2016? My husband is self-employed (and he doesn't participate in any 401(k)) and he plans to put on his Traditional IRA account $5,500 for the year 2016. Am I right, that his IRA has nothing to do with my Traditional IRA or my 401(k)?

Answer 1

Disclaimer: I am not a tax professional, and this is not tax advice. You should consult a tax professional. The information below is my reading of IRS publication 590-A which discusses IRA contributions in detail.

There are two kinds of IRAs - Roth and Traditional. They are different and have different rules. A Traditional IRA allows you to take deductions for contributions now, but then you are taxed on withdrawals at retirement. Conversely, in a Roth IRA you do not get to take deductions for contributions, but withdrawals at retirement (including all earnings) are tax-free. Since you said "pre-tax" in your question, I am assuming that you have a Traditional IRA, and I will focus on that type in this answer.

With a Traditional IRA there are two questions to consider: how much are you allowed to contribute, and how much of that contribution are you allowed to take as a tax deduction? These may not be the same depending on your situation. Let's consider them one at a time.

How much can you contribute?

This depends on your age and, to a certain extent, your income. The amount you contribute to your IRA does not depend on what you contributed to your 401(k), and is separate from your husband's IRA.

• If you are under 50, you can contribute up to $5500.
• If you are 50 or over (but under 70½), you can contribute up to $6500.
• If you're over 70½, then you can't contribute anymore and have to start taking withdrawals (from traditional IRA, not Roth).
• You can't contribute more than you actually made. So if you made only $3000 during the year then you could only contribute $3000. (However, there is a special rule where if you didn't make much money and your husband did, he could contribute to your IRA on your behalf [or vice versa]. But seeing as this probably does not apply to your situation, I won't go into detail on this.)

How much of a deduction can you take for your contributions?

This depends on your income, your tax filing status and whether or not you or your husband were covered by a retirement plan (e.g. a 401(k) plan) at work.

You said in your question that you are married, file your taxes jointly, and that you had a 401(k) for part of the year. It sounds like your husband does not have a 401(k). Here are the rules that apply to you based on this info (taken from page 13 of IRS Pub 590-A):

• If your combined income (MAGI) is $98,000 or less, you can take a full deduction for your contributions.
• If your combined income is more than $98,000 but less than $118,000, you can take a partial deduction. To figure out how much, there is a worksheet on page 17 of Pub 590-A you can use.
• If your combined income is more than $118,000, then you can't deduct any of your contributions.

For your spouse, since he does not have a 401(k), the limits are higher:

• If your combined income is $183,000 or less, he can take a full deduction.
• If your combined income is more than $183,000 but less than $193,000, he can take a partial deduction.
• If your combined income is more than $193,000, then he can't deduct any of his contributions.

Answer 2

The one bit missing from Brian's remarkably comprehensive answer is Solo-401(k). I happen to use Schwab for this, but other brokers offer as well. I offer this as you appear to want to shelter more money than may be possible, and the Solo offers a $50K or so limit when you include employer (you) deposits. It's a great choice for the self employed, and offers you flexible investing opinions.